Department of the Environment, Water, Heritage and the Arts Waste Technology and Innovation Study

The Valuation Phase - Multi Criteria Assessment and Cost Benefit Assessment

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The Valuation Phase - Multi Criteria Assessment and Cost Benefit Assessment

The framework methodology caters for decision making involving assessment of a wide range of alternatives across numerous evaluation criteria. When confronted with such an array of alternatives and criteria, it becomes difficult to sort, analyse, prioritise and make choices without the assistance of a tool or technique (Annandale and Lantzke, 2001). To assist the decision making process, the decision maker may use a multi criteria assessment framework or attempt to adopt common units between performance categories in order to integrate the financial, economic, environmental and social performance.

Both techniques offer a systematic and structured approach to assist in the analysis of options and hence have the effect of improving the quality of the decision and justifying actions as a result of outcomes. The tools assist comparison across different units such as tonnes of CO2-e and number of people employed. CBA requires that a further valuation step is undertaken to achieve the common monetised unit.

The act of simplifying complex system into simplified indicators is subject to criticism for failing to engender understanding about the complex issues relevant to the decision (Pickin, pers comms 2008). Further, it is suggested that CBA includes layers of uncertainty and assumption through which bias can enter (Pickin, 2006). He states the elusive valuations of environmental externalities are ripe for this type of bias.

Contra to this, one of the leading environmental economists of our time, David Pearce, has suggested that, despite the criticism, the use of monetary valuation for policy decision support carries less uncertainty than scientific presentation of data (Pearce, 2000). Pearce acknowledges that casual commentators suggest that the monetary valuation stage should be avoided due to uncertainty in the results. He suggests that this is a mistaken strategy and that avoiding the monetary valuation stage may seem like a rational response to the uncertainty embedded in the benefit estimates, but such a response adds at least two other forms of uncertainty.

Firstly, the ‘democratic’ uncertainty, this is the extent to which any outcome is now responsive to individuals’ preferences, and secondly the ‘decision-making’ uncertainty, i.e. the extent to which rational trade-offs between costs and benefits can be made’. Where the impacts are measured in non-monetary units and compared to costs, there is no apparent guideline on whether a policy is worth undertaking. Monetisation provides the guideline that policies should at least past a test to the effect that benefits should exceed costs.

In Multi Criteria Analysis (MCA), aggregation of performance indicators into common performance scores, may preserve the relative performance within an impact category but it may distort the relative performance across impact categories to the extent that the results are meaningless unless an alternative means for calibration between categories can be arrived at. Normalisation methods may be useful in this regard and used to determine the significance of the performance score with respect to the goal of the study in order to minimise the potential for error.

Two of the most popular decision support tools for waste management in Europe are Life Cycle Assessment (LCA) and Cost Benefit Analysis (European Topic Centre on Resource and Waste Management, 2001). As in Australia, both tools are the subject of debate and criticism. While any method that seeks to assess vast amounts of complex data and simplify it into performance indicators for a non-technical audience will contain assumptions and value judgements that may not suit all stakeholders.

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